The long-awaited offering marks the final step in Beijing's effort to list its top four banks, and removes a giant overhang for China's stock markets ahead of tens of billions of dollars in upcoming fund raisings from the country's financial groups.

Shares in AgBank, seeking to bolster its capital ratio following an industry-wide lending binge last year, edged up 2 percent from its HK$3.20 issue price in trading volume that was a quarter of the overall Hong Kong market by mid-session.

Its Shanghai-listed shares rose less than 1 percent on their first day's trade on Thursday.

While the first day performance matched expectations, earlier listings of China's other large banks fared much better.

Industrial & Commercial Bank of China <1398.HK> and Bank of China <3988.HK> both soared 15 percent on their Hong Kong openings after listing in 2006.

You can't really compare it with the sterling performance of ICBCs and other banks as those happened in a different market backdrop said Alfred Chan, chief dealer at Cheer Pearl Investment. At HK$3.30, (AgBank) reflects full value so there is no rush among retail investors to jump in buy.

Hong Kong's Hang Seng is down about 8 percent this year, while the Shanghai Composite has shed more than a quarter, battling Greece for the dubious honor of the world's worst performing market.

HISTORY

Founded in 1951 by Mao Zedong as the rural unit of the central bank, AgBank is the last China's Big Four state-owned lenders to list its shares.

With almost 24,000 branches and some 441,000 employees, AgBank has almost double the staff and twice as many outlets as Bank of China, and a slightly smaller asset base. ICBC, the world's largest bank by market capitalization, has 16,000 branches and 386,000 employees.

The IPO generated lackluster demand from Hong Kongers, with $3.35 billion worth share orders for the retail portion of its deal, or 5.9 times covered, making it the worst among the state banks' IPOs to appeal Hong Kong investors interests.

AgBank's soft debut bodes ill for upcoming fundraisings by peers including ICBC, China Construction Bank <0939.HK> and BoC, who are returning to capital markets to raise tens of billions of dollars to supplement their capital this year.

Certainly the performance of (AgBank) will impede demand for the likes of Bank of China or ICBC's funding, Ben Collett, Head of Equities at Louis Capital Markets, said in a Reuters Insider television interview, citing waning appetite for bank shares.

IFR reported on Friday that CCB has hired six banks to help it raise $11 billion through a rights issue in Hong Kong.

AgBank's IPO could still rise to a world record $22.1 billion if additional shares set aside in an over-allotment option are sold in the coming weeks.

Should the stock come under pressure in Shanghai and Hong Kong, underwriters are expected to purchase shares to help stabilize the price. Demand will determine whether the banks have to sit on the extra shares or release the so-called greenshoe.

WHO'S WHO

Executives at the Beijing-based bank gave a crystal model of the company's headquarters to the Hong Kong Stock Exchange.

Hong Kong legislators including CEO Donald Tsang were on hand to watch, along with a host of top executives including China International Capital Corp investment banking head honcho Levin Zhu and Deutsche Bank CEO Josef Ackermann.

Also present were the investment bankers tasked with selling the offering to mutual funds and arranging the cornerstone investors which accounted for $5.45 billion of the Hong Kong IPO.

According to the bankers involved, the deal was remarkably quick at just three months, but grueling.

AgBank's Vice President Pan Gongsheng is the man credited with leading the IPO process, having led ICBC in its record $21.9 billion float in 2006.

Pan is known for running a rigorous deal, and he didn't disappoint this time around. His team kept attendance records and daily reports on the 10 banks handling the IPO.

AgBank's Chairman Xiang Junbo, a war hero and award winning script writer, was relaxed in the morning, eating breakfast alone at Hong Kong's Shangri-La hotel before the listing.

After this listing, the bank will enhance its competitiveness in the market and its risk management, he said at the ceremony, sporting a red tie.

VALUATION CONCERNS

One factor weighing on AgBank's IPO is the slight premium to Bank of China in terms of price to book value, leading some fund managers to view the stock expensive.

The bank was historically the weakest of China's top four lenders, though a capital injection and a hive-off of bad loans have brought the company back to health.

The offering price represents 1.65 times AgBank's forward book value, just above BoC, but below that of ICBC <601398.SS> and CCB <601939.SS>.

CICC, Deutsche Bank , Goldman Sachs , JPMorgan , Macquarie and Morgan Stanley are the banks handling the Hong Kong offering, along with AgBank's own securities unit. CICC, Goldman and Morgan Stanley held the top role.